The evolution of corporate criminal settlements: an empirical perspective on non-prosecution, deferred prosecution, and plea agreements.

Author:Alexander, Cindy R.
Position:IV. Evidence through Conclusion, with footnotes and tables, p. 566-593

    1. Enforcement Trends

      As seen in Figure 1, agreements with public companies to resolve criminal allegations have grown substantially over the period. In 1997, only eleven criminal cases involving public companies were settled, but rapid growth began around 2005, leading to a four-fold increase in the number of settlements by 2011. There is a large spike in cases in 2010, followed by a return to prior levels in 2011. Figure 1 also illustrates the growth in offenses settled by DPA, NPA or plea agreement. Because some offenses result in multiple agreements--e.g., signed separately by a parent company and its subsidiary--we also report the number of settlements this way to illustrate that both the number of agreements and the number of related offenses has increased. (154) As shown in Figure 1, whether the number of settlements is measured as the number of agreements or in terms of the number of related offenses, there has been a significant increase in the total number of cases involving public companies over this time period. This increase in settlements may be due in part to increased corporate wrongdoing or increased enforcement effort over the period. In comparison with street crime, where victimization rates can be tracked over time through victim surveys and by crimes reported to police, there is relatively little documentation of the harms from corporate crime or its frequency of occurrence. There is, however, evidence of both a perceived increase in corporate wrongdoing (155) and increased corporate crime enforcement activities beginning with the establishment of the Corporate Fraud Task Force in 2002, (156) and continuing throughout the time period of this study. (157) Since these increased enforcement activities were established in response to a perceived increase in crimes that the public regards as distinctly economic in nature, the increase in settlements over time may be attributable to increased crime, increased allocation of resources to enforcement, or both combined.


      Figure 2 illustrates trends in the number of settlements by type of agreement. One result that is evident from these data is that the growth in corporate criminal enforcement shown in Figure 1 reflects both the emergence of NPAs and DPAs and the expanded use of plea agreements. Prior to 2003, almost no cases were resolved through NPAs or DPAs. Beginning in 2003, however, the number of NPAs and DPAs begins to grow substantially, although the number fluctuates. At the same time, the number of plea agreements remains above the number of NPAs or DPAs in each year over the period. Fluctuation in the use of plea agreements after 2007 is found to parallel the year-to-year fluctuation in the numbers of NPAs and DPAs shown in Figure 2. Overall, the emergence of NPAs and DPAs has not been accompanied by a reduction in the use of Plea agreements. There appear to be two possible explanations for this finding. First, it is possible that factors that led to increased use of NPAs and DPAs to settle investigations (such as increased enforcement effort) may also have led to increased use of plea agreements to settle criminal investigations involving corporations. Second, the increased use of NPAs and DPAs might reflect a general expansion of the criminal law into offense categories that might not otherwise have been prosecuted. While this question is largely beyond the scope of this Article, we do not see any evidence of new categories of offenses that are settled with NPAs or DPAs but not with plea agreements.


      Figure 3 illustrates the annual composition of settlements by type of agreement. Plea agreements remain the predominant form of settlement over the entire period. DPAs and NPAs together comprise a substantial portion of all settlements in the years after 2007, and more than half of settlements negotiated during 2006 and 2007. The practical importance of DPAs and NPAs relative to plea agreements can be seen in the amount by which the numbers of DPA and NPAs after 2003 exceed the maximum pre-2003 plea count that was set in 1999. In 2007 and again in 2010, the number of DPAs and NPAs breaks the 1999 record set by pleas of 27 in that year. The aggregate number of NPAs, DPAs and Pleas in 2010 can be seen in the figure as being almost three times the number of plea agreements entered in any year in the sample, pre-2003.

      Table 3 reports on the composition of settlement types over three time periods. Over the entire time period from 1997 to 2011, 329 settlements, or 68% of the sample took the form of plea agreements. The remaining 157 cases were resolved through either an NPA or DPA--91 (19%) through NPA and 66 (14%) through DPA. As shown, the composition of agreements changed markedly over time, with a steady downward trend in the proportion of pleas and an upward trend in the proportion of NPAs and DPAs. Prior to 2003, only two of the settlements took the form of an NPA or DPA. During 2003-2006, 40 cases (37%) of agreements took this form, and during 2007-2011 nearly half of the cases (44%) were settled with an NPA or DPA.

    2. Offense and Offender Characteristics

      This section examines offense and offender characteristics in relation to the type of settlement. We examine offense categories, severity of the offense, including its seriousness and the culpability of the offender, the parent or subsidiary status of the signatory to the agreement, and indicators of any business dealings between the offender and the government during the offense period.

      1. Offense Category

        Figure 4 presents evidence on the variety of alleged offenses that lead to criminal settlement agreements in our sample, as reflected in the variation we observe in settlement frequency for specific offenses over time. There are no clear trends or patterns of fluctuation, particularly when it comes to comparisons across offense categories. We observe considerable time-series variation in settlement frequencies for specific offenses. Unlike NPA, DPA and Plea agreements generally, fluctuation in offense category settlement counts does not occur in parallel over time. To the contrary, settlement counts sometimes move in opposite directions, as would occur if resources were being shifted from one enforcement category to another. (158) The most prominent settlement categories from the 20072011 period--bribery/kickbacks and antitrust--do not fluctuate in parallel over the period. For example, increases in bribery/kickbacks settlement frequency coincide with declines in the level of antitrust settlement activity between 2006 and 2008.

        [FIGURE 4 OMITTED]

        Counts of settlement agreements overstate the numbers of instances of criminal misconduct that are the subject of enforcement action in some periods. For example, Figure 4 shows a spike in foreign bribery (FCPA) settlement activity in 2010. A closer look at the data reveals that this spike does not reflect an expansion in the number of corporations independently prosecuted that year, but rather a tendency of groups of affiliated defendants to enter into more than one settlement agreement for a given underlying offense. This pattern is unique to the post-2003 period. In 2010, federal prosecutors entered into twenty settlements to resolve investigations of foreign bribery involving just seven public companies and their affiliates. Two of those companies were direct or indirect signatories to eight of the twenty settlements. (159) In terms of the number of public companies that directly or indirectly entered into settlement agreements for alleged FCPA offenses, the spike in activity in 2010 is less pronounced than the spike in agreements shown in Figure 4.

        Table 4 presents the numbers of settlement agreements, by offense category, that occurred in each of the periods, 1997-2002, 2003-2006, and 2007-2011, by type of agreement. The largest number of total settlements for the entire sample comes from antitrust (119), followed by environmental and safety (91), and foreign bribery (FCPA) (86). As shown in Table 4, antitrust, foreign bribery (FCPA), and healthcare/FDA offense categories each had more settlement activity in 2007-2011 than in any prior period. For example, for these three categories combined, there were an average of 31 settlements per year in 2007-2011 compared to 10.2 annually in 1997-2002 and 10.5 in 2003-2006. The foreign bribery area experienced even more dramatic change, rising from 0.5 settlements annually in 1997-2002 to 2.5 between 2003-2006, and finally 14.6 annually from 2007-2011.

        Table 4 also introduces evidence of change in the use of NPAs, DPAs and plea agreements over time within offense categories. As shown, the vast majority of settlements that involve antitrust and environmental/safety violations were plea agreements. Although NPAs appear among antitrust settlements after 2003, only eight percent of antitrust settlements have involved NPAs since 2003, and none are DPAs. (160) Similarly, only three percent of environment/safety settlement agreements after 2003 are NPA/DPAs. All of the environmental settlements in the sample occur through plea agreements. (161) In contrast, NPAs and DPAs emerged alongside plea agreements as primary settlement vehicles after 2003 in the areas of bribery and kickbacks, money laundering/tax violations and fraud. After 2007, more than a third of Import/Export and Healthcare/FDA settlement agreements are NPAs or DPAs.

        The above evidence is consistent with NPAs and DPAs serving to expand the reach of criminal enforcement. For example, in bribery cases involving foreign officials, while there has been a large increase in the number of pleas in the 2007-2011 time frame, the number of NPAs and DPAs has grown at an even faster rate. Similarly, while the number of domestic bribery and kickbacks plea agreements has remained roughly constant, there was a dramatic increase in DPA settlements in the 2007-2011 time period. Overall, the offense...

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